@Crosska 1983 wrote:
Ahhhhhh I’m having this same crisis!! I received $8k in down payment assistance from BOA and $5k closing cost grant from BOA and just got first 1099. I had no idea. Is mine also not seller funded bu my lender is BOA also? Also prob gonna need
to have someone so my taxes
This year bc of this !
This is a complex area, because the IRS is mainly concerned with a scheme they consider abuse of the 501(c)(3) and mortgage fraud, in which the seller "donates" money to an organization, which then gives the same money to the buyer as a "grant." This is what they mean by seller-financed down payment assistance. It's a scheme and a scam because it makes the bank think the borrower has more funds than they really do, and the organization takes a cut of the money as a fee and calls themselves an exempt organization, which they are not. https://www.irs.gov/charities-non-profits/down-payment-assistance-programs-irs-compliance-program-ov...
For example, John wants to buy a house from Jim for $100,000 but has no downpayment. Jim lists the selling price as $120,000 and "donates" $20,000 to the charity. The charity gives John a $20,000 "grant", which John uses to qualify for a mortgage. Jim gets the same selling price he wanted, John really only pays $100,000, but gets the mortgage without actually putting in any of his own money, and the "charity" pockets a finders fee.
This arrangement has nothing to do with affordable housing grants from your town or your bank. For example, at the university I used to work at, the city wanted to improve two run-down neighborhoods near the college, so the city, the college, and a bank, worked together to give $3000 each ($9000 total) in downpayment assistance to college employees who moved there. In the case of the college, their $3000 was required to be treated as part of the employee's taxable compensation. In the case of the city and the bank, the assistance was in the form of a loan that was forgiven if you lived in the home for a certain period of time. At the point when the loan was forgiven, a 1099-C was issued and the forgiven loan became taxable income.
I can't think of any reason why a legitimate down payment assistance program (not funded by the seller through a circular scam) would not be taxable income. After all, the IRS position is that all the money you take in is taxable income, unless there is a specific law that says otherwise. (If you find a dollar bill on the street, you're supposed to report it as taxable income.)
If you got $13,000 of assistance, you probably owe tax. But that still means you got about $10,000 in free money to buy your house, which is pretty good.
